Bills Digest No. 53 2002-03
Inspector-General of Taxation Bill 2002
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Inspector-General of Taxation Bill
2002
Date Introduced: 19 September 2002
House: House of Representatives
Portfolio: Treasury
Commencement: Royal
Assent
Purpose
The purpose of
this Bill is to establish the Inspector-General of Taxation.
In the Coalition s election statement Securing
Australia s Prosperity the Prime Minister announced that a
re-elected Coalition Government would create an Inspector-General
of Taxation. The Prime Minister stated that:
The Government will focus in the next term ..on
improving the structures and the governance practices of all its
Statutory Authorities and Office Holders, with particular emphasis
on those that impact upon the business community ..
The Coalition recognises the special role the
ATO plays in creating an environment in which businesses, and
indeed individuals, can prosper. As a separate and distinct
initiative, in a third term, the Coalition will strengthen the
advice given to government in respect to matters of tax
administration and process through the creation of a senior office,
the Inspector-General of Taxation.(1)
This announcement followed a series of problems
with key areas of tax administration such as mass marketed tax
schemes and the business activity statement.
Following the election statement, the Government
released The Inspector-General of Taxation in the Taxation
System(2) Consultation paper in May 2002. The Board
of Taxation consulted extensively on this paper and provided its
final report to the Minister for Revenue and Assistant Treasurer in
July 2002.(3) In August 2002 the Minister responded to
the recommendations of the Board of Taxation and stated that the
Government, in principle, accepted all of the Board s
recommendations.(4)
The Australian Taxation Office (ATO) is
responsible for the administration of the Federal taxation system.
It is headed by the Commissioner of Taxation. Broadly speaking, the
Commissioner of Taxation is responsible for the general
administration of tax laws and is the Government s principal
adviser on tax administration issues.
The Board of Taxation(5) is an
independent non statutory body responsible for providing advice to
the Treasurer on the quality and effectiveness of tax legislation,
the processes for its development including the processes of
community consultation and improvements to the general integrity
and functioning of the taxation system.(6)
The Commonwealth Auditor General reports to
Parliament on various aspects of the ATO s administration of the
tax laws as part of its overall responsibility of providing
independent reviews of the performance and financial management of
public sector agencies.
The Department of the Treasury is responsible
for developing tax law policy and providing advice to the Treasurer
in this regard.
A taxpayer can appeal against a decision, made
by the ATO, regarding their tax assessment or other taxation
decision. The taxpayer who has a complaint regarding the assessment
or decision may:
-
- apply to the ATO s internal review processes for the decision
to be reviewed,
-
- apply to the Administrative Appeals Tribunal for a review of
the decision, or
-
- appeal to the Federal Court.
If the taxpayer is dissatisfied with the
administrative action taken by the ATO, the taxpayer may complain
to the Commonwealth Ombudsman.(7)
Since the election statement and more recently
following the introduction into Parliament of the Inspector-General
of Taxation Bill, there has been significant discussion reported by
the media regarding the proposal.(8)
The Institute of Chartered
Accountants(9) and CPA Australia(10) have
both expressed strong support for the creation of an
Inspector-General of Taxation. It appears however that both bodies
consider that the Inspector-General proposal does not go far
enough. Prior to the introduction of the Bill into Parliament, the
Institute suggested:
The appointment of a Second Commissioner with
specific responsibility for tax administration and tax practitioner
support would be a positive first step to help resolve the real
problems with ATO administration and processes.
.a senior official would coordinate tax
administration and tax practitioner support. It would also provide
an important link to the position of the ..Inspector-General of
Taxation.
More recently, CPA Australia have suggested that
the Inspector-General s powers should be broader. For example CPA
Australia has suggested that the Inspector-General should:
Be able to review and make recommendations on
broader tax policy and law design issues in order to deliver
improvements to tax administration, and
Have the power to require the Government or
Commissioner of Taxation to respond to issues that the
Inspector-General is concerned about.(11)
Another key aspect of the proposal that has been
reported in the media is the budgetary commitment. The May budget
papers show that $2 million per year for the next four years will
be allocated to fund the Inspector-General. There have been a
number of key groups that have expressed concern at this level of
funding stating that $2 million is not sufficient to staff the
office with the level of technical expertise needed to operate
effectively.(12)
The Shadow Assistant Treasurer Mr David Cox, on
16 September 2002, in a media release opposing the
Inspector-General proposal, stated that:
The proposal to establish an Inspector-General
of Taxation is a smoke screen designed to trick taxpayers into
believing that the Government is addressing the problems with
Australia's tax system ..
Imposing another level of bureaucracy on a
flawed system will not solve the current crisis in tax
administration.(13)
On 15 October 2002, Mr Cox, in a further media
release stated that:
The Taxation Ombudsman is already empowered to
investigate systemic issues in tax administration.
However, the Taxation Ombudsman does not have
the resources to undertake the required investigations into
systemic issues (a point which was unanimously agreed to during the
three consultation sessions held by the Board of Taxation).
If the Howard Government were serious about
tackling systemic issues in tax administration they would provide
the Taxation Ombudsman with the resources to do so - not waste
$2million on overheads for a new under-resourced Inspector-General
of Tax.(14)
The Bill establishes the Inspector-General of
Taxation and sets out:
-
- the functions of the Inspector-General
-
- the powers of the Inspector-General
-
- protection to people providing the Inspector-General with
information
-
- disclosure of information, and
-
- appointment of the Inspector-General and other administrative
matters.
The Board of Taxation in its July 2002 report
recommended that:
the legislation establishing the
Inspector-General of Taxation should include a clause stating that
the object of the legislation is to improve the way in which the
Australian Taxation Office administers the Australian taxation
system from the perspective of taxpayers.(15)
Proposed clause 3 of this Bill
sets out the object of this Act and gives effect to the Board of
Taxation s recommendation.
Proposed Clause 6 of the Bill
establishes the Inspector-General of Taxation and proposed
clause 7 sets out the Inspector-General s functions. In
summary, under proposed clause 7, the
Inspector-General s role will be to review and report to the
Minister on the administration of the federal taxation system.
More specifically, the Inspector-General will
review the systems established by the ATO to administer the tax
laws and the systems established under tax laws that deal with
administrative matters. The Inspector-General will not have a
direct role in handling complaints from individual taxpayers nor
will it advise the Government on the revenue aspects of taxation
policy.
The Inspector-General will be required to report
review findings to the Minister (proposed clause
10). Proposed clause 11 provides that the
Minister may make the reports publicly available by tabling in
Parliament or otherwise.
Proposed clause 41 of the Bill
states that the Inspector-General will also be required to provide
the Minister with an annual report, to be tabled in Parliament,
regarding the Inspector-General s operations during the reporting
year.
Proposed clause 8 sets out when
the Inspector-General will conduct a review. The
clause provides that the Inspector-General can
undertake work on an own motion basis, it may be directed by the
Minister(16) to review a certain matter or it may
receive a request from the Commissioner of Taxation, a
Parliamentary Committee or Parliament to conduct a review.
The Inspector-General will be able to determine
its own work priorities (proposed clause 9)
however if the Minister directs it to conduct a review, it must
comply with this direction.
One of the issues raised during the course of
consultation on the Inspector-General proposal was the need to
ensure there is not an overlap or duplication in the work being
conducted by the Commonwealth Ombudsman, the Commonwealth
Auditor-General and the newly established Inspector-General. To
address this concern, sub-clause 9(2) states that
the Inspector-General must consult with these two bodies at least
annually.
Proposed Division 3 sets out
the powers that the Inspector-General has in performing its
functions. The powers relate to information gathering by the
Inspector-General. Some of the powers are supported by a penalty
regime to ensure that the Inspector-General is able to gather
information effectively.
Proposed clause 12 states that
the powers may be exercised either during the course of conducting
a review and providing a report or when deciding whether a
particular matter should be reviewed.
The Inspector-General may invite the public,
particular people or organisations to make submissions relevant to
the subject of the review (proposed clause 13).
The Inspector-General may make submissions, received under this
clause, available to the public. The Commissioner of Taxation, or
tax officials, may make submissions.
Proposed clause 14 states that
the Inspector-General may ask the Commissioner of Taxation for
information, documents or to answer questions that are relevant to
the review.
Proposed clause 15 states that
the Inspector-General may ask a tax official for information,
documents or to answer questions that are relevant to the review.
Tax officials are defined in proposed clause 4 and
include the Commissioner of Taxation. Failure to comply with the
Inspector-General s request under proposed clause
15 within the allowable time, is an offence with a maximum
penalty of 6 months imprisonment. The Bill excludes certain
defences otherwise available under the Criminal Code in proposed
subclause 16(1).
The Inspector-General may require that the
information or answers under proposed clause 15 be
given under oath or affirmation. As noted in the explanatory
memorandum, administering an oath or affirmation when taking oral
evidence means that the taking of the evidence becomes a judicial
proceeding for the purposes of Part III of the Crimes Act
1914. The explanatory memorandum states that:
this creates offences relating to false
testimony, fabrication of evidence, destruction of evidence and
interference with witnesses(17)
The Bill under proposed clause
38 also gives the Inspector-General the power to report a
tax official s misconduct to the Commissioner of Taxation and
misconduct of the Commissioner of Taxation to the Minister. This
power is the same as the power held by the Commonwealth Ombudsman
to report on misconduct by a Departmental
officer.(18)
Disclosing information
The legislation includes provisions to protect
people who provide the Inspector-General with information under
proposed clauses 13 15. Proposed clause 17
provides that a person who has made a submission to the
Inspector-General under proposed clause 13 cannot
be subject to civil proceedings brought by a person who has
suffered loss because of this disclosure, provided the disclosure
was done in good faith.
Similarly, a person that discloses information
under proposed clauses 14 and 15 will not be liable in civil
proceedings brought by a person that has suffered loss as a result
of that disclosure or criminal proceedings that contravene laws
(such as the secrecy provisions in the tax laws). Therefore, this
sub-clause overrides the secrecy provisions in the tax laws.
Victimisation
The Bill, in proposed clause 39
makes it an offence for a person to threaten to cause or actually
cause detriment to a second person because that person has given
evidence under proposed clause 14 or 15 of the Bill. This proposed
clause also makes it an offence to victimise a person because they
have been referred to in a report or because the Inspector-General
has reported that person to the Commissioner for misconduct.
The Bill contains measures to protect
information that is subject to legal professional privilege. The
Bill also contains a number of measures to ensure that information
that is obtained during the course of the Inspector-General s
activities are not disclosed or used for improper purposes.
Legal professional privilege protects
communications between lawyers and clients provided they pass as
professional communications in a professional capacity.
Proposed clause 18 provides that information or a
document does not lose its legal professional privilege simply
because it has been provided to the Inspector-General under
proposed clauses 13, 14 or 15.
Information supplied to the Inspector-General
under proposed clause 14, 15 or 25 that is the subject of legal
professional privilege or derived from information or a document
that is the subject of legal professional privilege, must not be
included in a report under proposed clause 10 or 41
(proposed clause 27).
The Privacy Act was passed in 1988. The
Act gave effect to Australia s agreement to implement Guidelines
adopted in 1980 by the Organisation for Economic Cooperation and
Development (OECD) for the Protection of Privacy and Transborder
Flows of Personal Data, as well as to its obligations under Article
17 of the International Covenant on Civil and Political
Rights.(19)
One of the main objectives of the Act is to
protect personal information in the possession of federal
government departments and agencies. Eleven Information Privacy
Principles (IPP s), which are based on the OECD guidelines, set out
strict safeguards for any personal information handled by federal
government agencies.(20)
As discussed above, under proposed clause 15 of
the Bill, tax officials will be required to pass personal taxpayer
information onto the Inspector-General. This is permitted under the
Privacy Act 1988 by virtue of Principle 11(1)(d) in the
Act which states that personal information may be disclosed to a
person, body or agency if it is required by law.
The Bill does however put in place mechanisms to
protect the privacy of taxpayers. The Bill ensures that the privacy
of taxpayer information is not compromised by the new arrangements
through proposed clause 23. This clause states
that information relating to a taxpayer s affairs must not be
included in a report under proposed clause 10 or 41 if the taxpayer
could be identified. In addition, submissions provided to the
Inspector-General under proposed clause 13 that contain information
relating to a taxpayer s affairs are not to be made publicly
available proposed subclause 23(2).
The activities of the Inspector-General are
further regulated to protect the identity of tax officials. Under
proposed clause 24, clause 10 and 41 reports and
sub-clause 13(3) submissions must not name tax officials other than
the Commissioner of Taxation, however parts of the ATO may be
identified.
The Bill sets out circumstances where the
Minister may issue a certificate limiting the Inspector-General s
powers to gather or disclose information. Proposed clause
22 states that an Inspector-General may issue a
certificate where the disclosure of the information would, to
mention a few examples:
-
- endanger the safety of any person
-
- prejudice the security, defence or international relations of
the Commonwealth, and
-
- involve the disclosure of deliberations or advice of the
Executive Council.
The Minister may issue a certificate under
proposed clause 22 of the Bill preventing the
Inspector-General from gathering certain information under proposed
clause 14 or 15, or disclosing information under
clause 10, 13(3) and 41. The Minister cannot however issue a
certificate preventing the Inspector-General from gathering
information under clause 13 of the Bill which relates to inviting
submission from the public.
The legislation also contains a provision to
ensure that confidential information that is provided to the
Inspector-General is not disclosed. Under proposed clause
26, if a submission under proposed clause 13 claims to
contain confidential information, that submission will not be made
available under proposed clause 13(3), and the information is
precluded from being included in a report under proposed clauses 10
or 41. It is interesting to note that the confidential information
clause does not contain any criteria that needs to be met before
confidentiality may be claimed.
Proposed clause 37 of the Bill
contains further protections relating to the treatment of protected
information and protected documents obtained by the
Inspector-General whilst performing the functions under the
Bill.
The clause makes it an offence with a maximum
period of imprisonment of 2 years, for the Inspector General or a
member of staff to copy or disclose to another person or court or
tribunal protected information or protected documents if this
conduct is not in the course of performing or exercising functions,
powers and duties under the Bill.
In addition under this clause, a court will not
be able to force a person to disclose protected information or
protected documents unless the disclosure is necessary to give
effect to the Act.
Proposed Part 3 of the Bill
establishes the administrative arrangements for the
Inspector-General and in particular sets out the appointment
arrangements for the Inspector-General. Proposed clause
28 provides that the Inspector-General will be appointed
by the Governor-General for a period of five years. The Bill does
not specify appointment criteria. Proposed clauses 32 and
33 state that:
-
- the Inspector-General must not engage in paid employment
outside the duties of Inspector-General, and
-
- that the Inspector-General must disclose all interests that
could conflict with the Inspector-General s proper performance of
functions.
Proposed clause 35 specifies when the
Inspector-General s appointment must be terminated, including where
the Inspector-General:
-
- engages in other paid work, or
-
- fails to disclose interests.
The Bill also deals with staff for the
Inspector-General (proposed clause 36), delegation
of powers by the Inspector-General (proposed clause
42) and regulations under the Bill (proposed
clause 43).
The Inspector-General of Taxation Bill puts in
place the key legislative requirements recommended by the Board of
Taxation to the Minister for Revenue and Assistant Treasurer in
June 2002.
As noted in the background in this Digest, one
of the primary criticisms levelled at the proposal is that the
Inspector-General s limited funding may restrict the office s
ability to drive reforms to the administration of the federal
taxation system.
The Bill clearly defines the role of the
Inspector-General namely to review and provide independent reports
and recommendations to the Government on the administration of the
taxation system. This new oversight body has not been handed power
to directly change the way that the administrative functions of the
federal taxation system operate. It would appear that
implementation of the Inspector-General s recommendations will
occur through the normal taxation policy development channels.
-
- The Howard Government Putting Australia s Interest First:
Election 2001: [http://www.liberal.org.au/policy/securing.PDF],
(14 October 2002).
- http://www.taxboard.gov.au/inspector_general.html,
(14 October 2002).
- Inspector-General of Taxation: A Report to the Minister for
Revenue and Assistant Treasurer; July 2002: [http://www.taxboard.gov.au/content/inspector_general/index.asp],
(14 October 2002).
- Minister Responds to Inspector General Report , Media
Release, Senator Helen Coonan, Minister for Revenue and the
Assistant Treasurer, 16 September 2002: [http://assistant.treasurer.gov.au/atr/content/pressreleases/2002/098.asp],
(14 October 2002).
- The Board of Taxation was established in August 2000 following
recommendations made in A Tax System Redesigned (the Ralph
Report).
- The functions of the Board of Taxation are detailed on the
Board of Taxation s website [http://www.taxboard.gov.au/content/charter.asp],
(14 October 2002).
- Crowley, Melinda et al, Australian Master Tax Guide
2002, CCH Australia Limited, Sydney, 2002, p. 10.
- ICAA call for senior voice for tax practitioners within ATO ,
Media Release, The Institute of Chartered Accountants, 16
August 2002: [http://www.icaa.org.au/tech/index.cfm?id=A105309912],
(14 October 2002).
- The Inspector General of Taxation must be well resourced to
make a difference, warns ICAA , Media Release, The
Institute of Chartered Accountants, 16 October 2001: [http://www.icaa.org.au/news/index.cfm?id=A104415906],
(14 October 2002), Time to move forward , Media Release,
Institute of Chartered Accountants, 12 November 2001: [http://www.icaa.org.au/news/index.cfm?id=A104435196],
(14 October 2002).
- Inspector General must deliver improvements to the tax system ,
Media Release, CPA Australia, 17 September 2002: [http://www.cpaaustralia.com.au/01_information_centre/1_0_0_0_home.asp],
(14 October 2002).
- ibid
- ATO Powers Under Scrutiny , The Australian Financial
Review, October 4 2002; The Inspector General of Taxation must
be well resourced to make a difference, warns ICAA , Media
Release, The Institute of Chartered Accountants, 16 October
2001; Tax Inspector Will Need Funds: Critics , The
Australian, 17 September 2002, Poor Start For New Tax Advocate
, The Australian Financial Review, 17 September 2002.
- Inspector General of Tax Media Release, Mr David Cox
Shadow Assistant Treasurer, 16 September 2002: [http://www.alp.org.au/media/0902/20002195.html],
(14 October 2002).
- Inspector General of Tax - It s a Waste of Money Costello ,
Media Release, Mr David Cox Shadow Assistant Treasurer, 15
October 2002:
[http://www.alp.org.au/media/1002/20002556.html],
(18 October 2002).
- Inspector-General of Taxation: A Report to the Minister for
Revenue and Assistant Treasurer; July 2002: [http://www.taxboard.gov.au/content/inspector_general/index.asp],
(14 October 2002) p.vi .
- Although not defined the Minister will generally be the
Treasurer or the Minister for Revenue and the Assistant Treasurer.
- Explanatory Memorandum, Inspector-General of Taxation
Bill 2002.
- Commonwealth Ombudsman Act 1976, section 8.
- Further background information regarding Federal Privacy Law
can be found at: [http://www.privacy.gov.au/act/index_print.html#2.1],
(14 October 2002).
- The Privacy Principles can be viewed at: [http://www.privacy.gov.au/publications/ipps.html],
(14 October 2002).
Susan Dudley
21 October 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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